Passing the Chapter 7 “Means Test” Even If Your Income Is “Too High”

Even if your income is higher than the “median income,” you may still be able to pass the means test by going through the expenses part of the test.

There are a number of ways to pass the means test so that you can file a Chapter 7 case. The easiest way is if your income is no more than the “median income” amount for your state and family size. Your income for this purpose is defined in an unusual and very specific way, as explained in our last blog, called “Passing the Chapter 7 ‘Means Test’ the Easy Way.” But even if your income is higher than the applicable median income, you can often still pass the means test in a couple of other ways.

The Expenses Step of the Means Test

If your income is more than the median income, then the next step is to look at your expenses.

But it’s not as simple as just looking at your actual expenses. Realize that the point of the means test is to not allow people who have the means to pay a meaningful amount of their debt to just write off all their debts in a Chapter 7 case. So in its attempt to meet this purpose, Congress tried to come up with a more objective way to determine people’s allowable expenses. Frankly, Congress didn’t trust people to just make a list of their expenses, thinking they would inflate them to show they had no money left over to pay their creditors.

The Complicated Allowed Expenses

So in its attempt to find a more objective or truthful list of expenses, Congress put together a system based on a combination of some standardized expenses along with some of your actual expenses.
The standard expenses get complicated because some are based on national standards and some on local ones. The national standards include food/clothing/housekeeping expenses and out-of-pocket health care costs. The local

standards can either be based on your county — such as housing and utility expenses — or on your “Metropolitan Statistical Area/Census Region” — such as vehicle and other transportation expenses.

Your actual expenses are allowed — although often with limitations and/or only with appropriate documentation — for certain taxes, term life insurance, involuntary payroll deductions, child and spousal support and other court-ordered payments, childcare, educational expenses for children under 18 years, and charitable contributions. You can also ask for a higher allowance than the standard amounts for food, clothing and home energy, while demonstrating why the higher amounts are reasonable and necessary.

After Listing All Allowed Expenses . . .

Three more steps:

After subtracting all the allowed expenses from your “current monthly income,” the balance is your “disposable income.” If you have no disposable income — your allowed expenses exceed your “current monthly income” — then you’ve passed the means test.

You can still pass the means test even if you DO have some “disposable income” IF the amount is low enough. To determine this, the rules get very specific. If the amount of your monthly disposable income is less than $117, you pass. If the amount is $195 or more, you don’t pass this part of the test (but may still pass with the next step). If your monthly “disposable income” is somewhere from $117 to $194, then a formula gets applied comparing that amount to the amount of your “general unsecured debts” (debts without collateral that don’t belong to a special set of “priority” debts). If your disposable income is relatively low compared to those debts, indicating that you would not pay that much to them over time, then you can pass the means test.

At this point if you’ve still not passed the means test, you might be able to do so “by demonstrating special circumstances” — either a) other reasonable and necessary expenses not included in the usual expenses or b) appropriate adjustments to your income that were not reflected in the usual calculation of current monthly income.

As is clear from this blog and the one just before, there are a number of ways to meet the means test, but it can be an awkward, complex task. This is not a do-it-yourself project. f you are in the Dallas-Fort Worth metroplex, let Attorney Carrie Weir show you how the means test is applied to your unique, personal situation. Please schedule a no-obligation, free, confidential consultation with us by calling 972-772-3083 or contacting us here .